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Four Fundamental Econ Facts Missed By Economist Cantor-Slayer David Brat

AP Photo, P. Kevin Morley/Richmond Times-Dispatch

Dave Brat speaks to hundreds of supporters after beating Republican Congressman Eric Cantor in Tuesday's Republican primary for the 7th Congressional District in Virginia, June 10, 2014.

On MSNBC Wednesday morning, Chuck Todd asked David Brat, the Eric-Cantor-slayer, Ayn Rand acolyte, and chairman of the economics department at Randolph-Macon College, about his viewpoint on the minimum wage. Here’s their exchange:

TODD: Should there be a minimum wage in your opinion?

BRAT: I don't have a well-crafted response on that one. All I know is if you take the long-run graph over 200 years of the wage rate, it cannot differ from your nation's productivity. Right? So you can't make up wage rates. Right? I would love for everyone in sub-Saharan Africa, for example— children of God—to make $100 an hour. I would love to just assert that that would be the case. But you can't assert that unless you raise their productivity, and then the wage follows.

So you raise a nation’s productivity rate and its wages follow, huh? Does Professor Brat pay even the slightest attention to the figures on productivity and wages in the United States? If he did, he’d know that between 1947 and 1973, productivity in the U.S. increased by 97 percent and median compensation (that’s wages plus benefits) increased by 95 percent—almost exactly in accord with Brat’s assessment. Since 1979, however, productivity in the U.S. has grown by 65 percent and median compensation by just 8 percent.

That is to say, during the pre-globalization post-World War II decades—the only time in American history when unions were strong enough to ensure widespread collective bargaining—wages did indeed reflect productivity levels. Since then, as the economy has gone global, as American corporations have offshored jobs and as private-sector unions have all but vanished from the landscape, productivity has increased but all the economic gains that have come from that increase have gone to the wealthiest tenth of Americans—and since 2009, according to University of California economists Emmanuel Saez and Gabriel Zucman, all income growth has gone to the top 5 percent. That’s why wages now constitute the lowest share of the nation’s economy since the government began measuring such things in the mid-1940s, and profits the highest share.

These facts have not been kept secret. They’ve been widely published in popular media and in economics journals. Somehow, they’ve either failed to come to David Brat’s attention or are so at odds with his views of heaven and earth that he has resisted taking them in. Which suggests that while his election to the Congress will be bad for the county, it may well be good for students at Randolph-Macon. At least the chairman of their economics department won’t be an utter ignoramus.

Comments

So the author’s theory is that our country has become more capitalistic and less statist since 1979? EPA? OSHA? etc? Someone please explain that!
If union power was the panacea the author proposes, post WWII Great Britain should be a high-flying success. Yet they languished until capitalist reforms were instituted in the 1980’s. The problem was the state messing with something they should leave well-enough alone.
Consider this alternative: “It is only when the state manipulates and over regulates free markets that capitalism fails. However, capitalism usually takes the blame for the failures of statism.” (John Browne)

Tommy - It is your assertion that no correlation exists from a relative dearth of union representation to a failing middle class? That's simply a right wing "fairytale". Much like "trickle down economics" and the best of all "free markets". I didn't see anything from the author mentioning a "panacea", for 'unions' being the answer for our economic malaise - but you'd have to be in utter denial (or closed minded Republican), to insist a decline of unions hasn't been a significant symptom for this decline. It is disingenuous if not patently rediculous, to lay blame at the feet of the EPA or OSHA, you prefer an even higher rate of airborn illness in this country?! As for your comment on Great Britain, Margaret Thatcher was a disasterous, ruinous bully. At least to those whom worked for a living. She decimated British industry, Britain saw record inflation, record bankruptcies, poll tax, record home repossessions, record unemployment. Do you really think most British citizens considered this "improvement"?!

Brat ignores that Alan Greenspan and most of his friends were fans of Ayn Rand leading to the economic meltdown in 2008 largely due to lack of regulation and/or the regulators being in bed with the criminals. He might reply that he is also advocating a religious theocracy, but most regimes, including Hitler's Germany, were supported by religious groups even afer the corporations realized their buying Hitler did not work. I use Hitler's name because Brat used it as the threat if his policies are not followed.

Huh? “...leading to the economic meltdown in 2008 largely due to lack of regulation and/or the regulators being in bed with the criminals.” These are opposite ends of the spectrum – it can only be one of the two (bad capitalism or bad gov’t intervention); it can’t be both. History indicates it is the latter.

Often on Wall Street the SEC office was in the same building as the company they were supposed to be regulating. They went to lunch together. They had a revolving door together. It was not the government who came up with the scam to fund every loan because they were going to tranch it and sell the bond with a false rating. That is rightie propaganda because, as Brat would say, all government is bad. Very convenient idea for crooks.

Tommy is so wrong it's not funny. First, the article said nothing about "capitalism vs. statism", whatever that is. Second, the phrase "...leading to the economic meltdown..." doesn't imply "opposite ends of the spectrum"--it can be both, because there is a third alternative: regulators who are NOT corrupt(something "statists" devoutly wish for and try to attain). The presence of regulations does not automatically imply corruption of the regulators. Besides, there is no contradiction between "inadequate regulations" and "corrupt regulators"--they can and do coexist.
Tommy needs to read history more carefully and get off his high horse.

Haven't you learned by now that economics does not work, because people are greedy? Unions did a good job for a while but then the greedy people found a better way to get theirs. I never studied economics but I lived through all this.

It is in the acquisition of great wealth that great harm is done to society, and as this wealth is concentrated in the hands of fewer and fewer people the harm done is increased until finally society collapses and most of the wealth is rendered valueless. German Fascists demonstrated this nicely and now Russia and the USA are following suit. If money were to return to it's original use as a token representing work done instead of being a commodity by itself it would not be possible to have such inequality unless there was a real difference in the amount of work done. In our current system the wealthiest work the least, living off the work done by the employees and occasionally replacing humans with machines to increase the profits. This system is unstable and history has shown it will not last more than a generation or so.

For countries as different as the USA and sub-Saharan Africa the different in wages is a reflection of the different in productivity. According to the World Bank, GNI per-capita for sub-Saharan Africa is $1,547. A comparable number for the USA is $52,340.

Given the vast gap in national income per-capita, distributional issues are irrelevant. Meyerson's numbers for the U.S. since 1980 aren't that bad. They are also meaningless. A 30 fold delta in productivity is far more important in determining wages than rising inequality in the U.S.

Brat is essentially right and Meyerson is wrong. Run correlation between wages and per-capita GDP globally and linkage is overwhelming and obvious.

This is textbook sophistry. What is being ignored is the regulatory compliance cost elephant in the room that gobbles 40% of GDP (including the governments consumption of 20% GDP). Here's how it works:

Your salary is based on your productivity and your productivity has to cover your salary plus overhead plus profit. An increase in productivity will not necessarily translate into a wage raise. If the rent goes up and sales increase as a result of increased productivity, then the rent must be paid first before any raise can be paid.

But what if your company has to hire extra accountants to comply with Sarbanes-Oxley and Dodd-Frank? Those accountants have nothing to do with sales, but their salaries can only be paid from them. Same thing for human resources people hired to navigate health insurance, family leave policies, workplace discrimination awareness, sexual harassment awareness, etc. These people do not make product or sell them, but they can only be paid by sales income. How about legal fees to comply with EPA mandates, labor laws, OSHA, and now ObamaCare? Who pays legal staff or those $750 per man-hour legal fees?

The short answer is you do. Your productivity must increase so sales can increase (or labor cost decrease) so that extra money can pay all those nice people who have absolutely nothing to do with the bottom line except keep management out of jail.

There is where your productivity raise went, To the 40% GDP vacuum that government regulators have decreed.

“The entire amnesty and low-wage agenda collapses if Cantor loses — all the billions of special interests dollars, all the favors, all the insider dealing — all of it is stopped in its tracks tomorrow if the patriotic working families of Virginia send Eric Cantor back home tomorrow.

Tomorrow, the middle class has its chance to fight back.

Tomorrow, the people of Virginia can show up to the polls and defeat the entire crony corporate lobby.